The Internal Revenue Service has granted relief to some homeowners struggling to rebuild after Hurricane Katrina devastated the Gulf area in August 2005 so they can continue to qualify for a low-income housing credit.
Owners of low-income buildings in the affected disaster area, known as the Gulf Opportunity Zone, can continue to claim the credit under certain conditions. The owners need to be doing ongoing physical repairs, enter into binding, written contracts for the repair or restoration to be completed within a certain period, or be actively negotiating contracts for the repair or restoration.
State housing credit agencies can determine what constitutes a reasonable restoration period for the homes, but the IRS said the period couldn't go past the end of 2009. That extended the deadline by another 24 months. Many residents of Louisiana and Mississippi who were affected by Katrina have complained about the slow pace of rebuilding and the problems they have encountered with federal aid.
If the building is restored within the period determined by the housing credit agency, the building will not be subject to recapture and it may continue to earn credit during the restoration period. But if the homeowner fails to restore the building within that period, the owner would lose all the credit claimed during the restoration period and suffer recapture for any prior years of claimed credit.
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